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A weblog about the politics and affairs of the old and glorious City of Albany, New York, USA. Articles written and disseminated from Albany's beautiful and historic South End by Daniel Van Riper. If you wish to make a response, have anything to add or would like to make an empty threat, please contact me.

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December 18, 2015

The City Of Albany’s Budget Crisis

The mayor confronts the governor and proposes a garbage flat tax

[Note: The title of this article has been changed so that it is clear that “Albany” refers to the City and not to the State.]

City of Albany mayor Kathy Sheehan has made no secret of the terrible financial condition of the City that she inherited from her predecessor. Last year she announced outright to anyone who would listen that the City is barely managing to balance the books and is on the brink of defaulting into a new kind of public bankruptcy. Details and precedents are mostly lacking, but this would involve the State of New York stepping in to take control of the City government.

If Albany defaults, according to the mayor, the State could effectively dismiss the elected City government. The new unelected governing board appointed by the governor would be organized along corporate lines, not accountable to the public, and would impose austerity on the taxpayers. What this means is that essential City services would be withheld and destroyed while a large chunk of City tax revenue would be funneled to the downstate bankers that Governor Andrew Cuomo serves.

Albany would suffer the same fate as Detroit Michigan. According to non-corporatist accounts, the former auto manufacturing capital of the world was set upon by hardline corporatists who looked to destroy elected government in that beleaguered community, and that City is now suffering from corporate looting that makes the worst of past petty corruption and mismanagement by elected politicians look benign by comparison. Could Albany, as Mayor Sheehan repeatedly warns, suffer the same hardline corporatist austerity looting designed to dismantle this community?

City Of Albany Mayor Kathy Sheehan Holding A Press Conference In Lincoln Park This Past July
City Of Albany Mayor Kathy Sheehan Holding A Press Conference In Lincoln Park This Past July

How grave is the threat from the State? Well, it’s never been done before in this State. And there seems to be an attitude among the general public that the mayor is exaggerating the crisis. That’s how I interpret the public response that I’ve seen, which involves shoulder shrugging and sighing and not much else.

But the situation causing the underlying revenue problem is real. It is more than real, it is absurd and grossly unfair, I would even say discriminatory. According to a 2010 report by a consultant called The PFM Group, the City of Albany is more dependent upon property tax revenue than any other City in New York yet receives the lowest amount of financial aid from the State!

We’re the State capital, we have to bear the burden of hosting State government. Look at this graph from the report. Albany’s annual budget is twice as dependent upon property tax revenue than, say, Yonkers, but receives way less than a third of the State financial aid that Yonkers gets. In fact, Albany receives less State aid than any other City in New York State.

Albany Property Taxpayers Get Shafted
Albany Property Taxpayers Get Shafted

What this means is that wealth is being systematically extracted from Albany, the property taxpayers of Albany are subsidizing the other Cities of the State (including that big one downstate.) On top of that, like all the other Cities in this State, Albany is heavily subsidizing the financially unsustainable suburban municipalities, most of which depend upon continued unregulated growth (sprawl) to balance their budgets. It’s no wonder that property taxes in Albany are so high and continuing to rise, we Albany property taxpayers are keeping everybody else solvent.

One might ask, this is bad but is it really the State’s problem to solve? According to Mayor Sheehan, 61% of property in the City of Albany is tax exempt, and according to the PFM report, more that half of that exempt property is owned by the State. One might begin to wonder how Albany has managed to maintain the illusion of solvency for the past 50 years.

And as anyone who lives in downtown Albany knows all too well, the City plays host to the State on a daily basis, providing City services and putting up with State-generated inconveniences. This is typical of the relationship between States and their capitals, most States have a system in place to compensate their capitals for using their services. New York, one of the richest States in the country, has absolutely nothing for its capital other than occasional small handouts, which puts the financial burden squarely on the shoulders of City of Albany property taxpayers.

So to put it bluntly, the State of New York is willfully screwing the crap out of the City of Albany property taxpayers. As one of those screwed crapless property taxpayers I have to say I am sick and tired of what these people are doing to me. This has got to change.

And Look Who Is Shafting Us
And Look Who Is Shafting Us

Mayor Sheehan’s predecessor in office, Jerry Jennings, had a simple formula to deal with this unstable financial situation. Year after year he would simply raise property taxes. Any question about how revenue was spent by his administration would get lost in his famously undecipherable annual budget, and perhaps out of fear of retaliation few citizens would object to his practices. (I can attest that fear was justified.)

During Jennings’ 20 years of ever higher taxes and hidden cash flow the City of Albany steadily lost taxable property as property became devalued and property owners simply abandoned their holdings. Meanwhile he made absolutely no effort to confront the underlying problems, no doubt because he did not want any sort of changes caused by public accountability to upset the old kleptocracy that he maintained. In his last years in office he would refer to the unfair extraction of wealth by the State when meeting the public, but this was merely rhetoric used as an excuse for raising taxes again and again.

Kathy Sheehan took office with the primary intention of reversing the decline of Albany by confronting and repairing this untenable financial situation. During 2014, her first year in office, Ms. Sheehan was mostly concerned with initiating established accounting practices and quietly rooting out sources of corruption, that is, gaining control of cash flow. At the same time she tried with some success to reverse the steady decline of delivery of City services, which was one of the defining features of the Jennings administration.

During that first year the new mayor personally brought the details of the budget crisis to the citizens, scheduling close to two dozen neighborhood meetings last autumn. From those meetings she discovered that most of the citizens were either apathetic about finances or were so caught up in momentary distractions that they didn’t want to hear what she had to say. This past autumn she made exactly one public budget presentation outside of City Hall (to CANA, the Council of Albany Neighborhood Associations in October) and said that the many neighborhood meetings that she held a year earlier were “overkill.”

Kathy Sheehan Campaigning For Andrew Cuomo (left) In Albany, 2014
Kathy Sheehan Campaigning For Andrew Cuomo (left)
In Albany, 2014

This year the mayor is doing a very interesting thing that is also very risky. The City budget that she has presented to the Common Council is $12.5 million dollars short. She is demanding that the State release this sum to Albany to complete the budget.

The mayor is very clear that she knows exactly what she is doing. After some media outlet misreported that she is asking for $12.4 million from the State, she went out of her way to correct that minor error. “This is a very challenging budget,” she told CANA, “we are not winging it. $12.5 million is a real number. The usual is to ask for more than you need, but to ask for more gets us into this competition. I need twelve and a half million.”

But Ms. Sheehan is not merely demanding money, she is calling for the fundamental inequity to be fixed by amending Section 19-A of State public law, which calculates the compensation that the State pays to communities for hosting State facilities. There is a list of how much money is to be “payable to any city located in a county in which there has been constructed a state office building project” without accounting for such things as impact or inflation. Obviously the Capital City is more than just a location for a State facility, this cheap payout to Albany does not come close to fairly compensating for lost tax revenue.

Where The Government Of Albany Gets Revenue, Note 19-A Slice Of The Pie Which Is Less Than Enough
Where The Government Of Albany Gets Revenue,
Note 19-A Slice Of The Pie Which Is Less Than Enough

What is going on here is that Mayor Sheehan is playing a a very serious game of chicken with Governor Cuomo. By forcing public attention on the underlying inequity (shafting) in Albany’s financial relationship with the State she is attempting to turn the problem into Cuomo’s problem. The Albany City budget has already been passed with the deficit in place, when the State budget is passed in January she expects that $12.5 million will be set aside to fill that gap.

If Cuomo does not fill that budget gap this coming January then Mayor Sheehan told CANA she will resort to “Plan B, a 22% property tax increase and cutbacks of City services.” Presumably the citizens and the Common Council will balk at this, the local corporate media will have a loud field day, and the looming specter of default will greatly embarrass Governor Cuomo at a time when he can’t easily absorb any more embarrassments. To have his own capital seat collapse financially right under his butt could cause the Governor to become a worldwide laughing stock.

Since she took office Kathy Sheehan has paid her political dues to Andrew Cuomo, publicly supporting his positions, campaigning for his reelection and generally shilling for him. I’m fascinated to see that she is demanding that this problem be faced and dealt with, rather than subserviently mewling for a favor. Still, I’m sure that between now and when the State budget is released in January Ms. Sheehan is having some anxious moments.

Red Light Camera Intersection At Second And Frisbee Avenues
Red Light Camera Intersection At Second And Frisbee Avenues

Ms. Sheehan’s budget for 2015, proposed to and passed by the Common Council in 2014, had some major holes. Most notable was the revenue that was supposed to be generated by red light cameras at selected stoplights, some $1.9 million. If you asked any City official what the cameras were for they would say it was all for safety. But the fact was that the cameras were proposed primarily to make the 2015 budget work.

Well, that short-term function, balancing the coming year’s budget, turned out to be, at best, a fantasy. The first cameras were not installed until late July, more than halfway through the year. In late September City treasurer Darius Shahinfar reluctantly told me in answer to my inquiry that total revenue from red light camera tickets had been at that point rather small.

It turns out that by State law Albany can only install cameras at 20 intersections, no more. (Was Mayor Sheehan aware of this?) It also turned out that the oft-heard complaint that drivers in Albany constantly flout traffic signals is not as big of a problem as generally believed. Personally, the only violations I’ve witnessed at these intersections since the cameras have been installed are illegal right turns on red.

One other big revenue problem with that 2015 budget was the sale of the land that the City owned down in Coeymans, where the former mayor planned to locate a new dump that was supposed to accept garbage brought by barge from New York City. That never happened because the locals successfully sued to stop the scheme. Mayor Sheehan’s budget included generating $5 million from that sale (which she told me at a public meeting was a sure thing) but ended up only selling for $3.2 million.

Neatly Bagged Garbage On Catherine Street Waiting For Pickup
Neatly Bagged Garbage On Catherine Street Waiting For Pickup

So now we have the City budget for 2016 with the important and necessary showdown with the State as its centerpiece. This has served, intentionally or not, as a distraction from this year’s imaginary revenue collecting scheme, this year’s red light cameras. Mayor Sheehan wants to start charging property owners for picking up garbage, a flat tax that is supposed to raise $1.5 million this coming year, a revenue figure included in the budget.

To put it bluntly, this is a property tax hike that, on the surface, is intended to hit landlords, who, as everybody knows, are rolling in money and deserve to be milked. Let’s make those distant capitalist exploiters pay $180 per unit every year, for no other reason than spite. In reality, most of those landlords who live in or near their own rental properties are the least able to pay this flat tax.

Economic inequity is built right into the mayor’s proposal. The first living unit of each building is exempt from the tax, but every unit after the first unit in a building is assessed $180 per year. The owners of single family houses don’t have to pay the garbage tax but owners of two family houses must pay for that second unit.

Not Neatly Bagged Garbage That Sits All Week On Catherine Street
Not Neatly Bagged Garbage That Sits All Week On
Catherine Street

What this means is that suburban style buildings that house upper middle class people are exempt from paying, while two family houses mostly located in the older downtown parts of the City are hit with the tax. Big mansions, of which there are a number in Albany, are exempt from the tax. Albany’s traditional two family homes are usually bought by less wealthy people struggling to meet the mortgage with the extra rental income, indeed that is the story with most of the owners of two family homes in my neighborhood.

So this proposal pits uptown against downtown, rich against poor. Single family homeowners (which includes Mayor Sheehan, by the way) who are more likely to vote in mayoral elections than poor people will simply shrug their shoulders because they won’t be directly affected by the tax. Meanwhile the owners of two family homes, who are often putting their own resources into rehabbing 150 year old buildings downtown, will have one more reason to be discouraged.

As for the well-off owners of multi-unit apartment buildings who don’t reside anywhere near the City of Albany, they will simply pass the costs onto the tenants. Ask anyone who has gone apartment hunting in this City lately, available apartments are scarce and are getting more expensive. Albany’s population is swelling as middle class people give up expensive single family houses in the suburbs and move into more affordable urban apartments, this is currently a national trend that is on the rise.

Standing On The Part Of The Rapp Road “Landfill” Undergoing “Restoration” Looking Toward The Newer Mountain Of Waste (Photo: Andy Arthur)
Standing On The Part Of The Rapp Road “Landfill” Undergoing “Restoration” Looking Toward The Newer Mountain Of Waste (Photo: Andy Arthur)

The backstory behind this proposal revolves around The Dump, the so-called Rapp Road Landfill, Jerry Jennings’ giant pile of garbage and toxic waste that sits on top of the porous Pine Bush sand and over a designated emergency drinking water aquifer. The former mayor used The Dump to balance his budgets, claiming that the facility generated about $5 million per year in profit. This money came from accepting waste, no questions asked, that was trucked to Albany from hundreds of miles away. Less than 12% of the waste in that horrible mountain of shit looming over the Thruway originated from the City of Albany itself.

Mayor Sheehan claims that the garbage tax is necessary because revenue from The Dump has fallen off because… drumroll please… the City is trying to make The Dump last longer without expanding it by encroaching on more Pine Bush land. Bonds on the last expansion of The Dump are to be paid off by 2020 and contracts run until 2023. I haven’t heard her mention that because there is a massive glut of waste dumping facilities, it is basically impossible for Rapp Road to compete with all the other less expensive dumps and stay within the confines of the law.

But back when Kathy Sheehan was Albany City treasurer she issued a report that called into question how much revenue The Dump actually generated. Between the bonds and all the hidden costs scattered across the budgets, she suggested that the Rapp Road Landfill may actually be losing money. Now that she is mayor I’m sure she has a more accurate picture of this bad business model, but I have yet to hear her reverse that earlier report that The Dump has been losing money all along.

Bags Of Garbage On Morton Avenue Waiting For Pickup
Bags Of Garbage On Morton Avenue Waiting For Pickup

The immediate problem for Mayor Sheehan is that the Capital District Association of Rental Property Owners (CDARPO) has fully mobilized to fight the imposition of the new tax. In addition the recently formed New York Capital Region Apartment Association (NYCRAA) which is a subsidiary of the countrywide National Apartment Association, has signaled extreme displeasure with the proposal. This is significant because NYCRAA was part of Mayor Sheehan’s transition team in 2014.

Way back in the last century CDARPO successfully sued to stop proposed garbage fees by presenting the argument that a separate garbage tax would be double taxation for the same service, since the regular property taxes already fund bonds and salaries and equipment. As Judd Feinman, president of NYCRAA put it, "Is the City going to lower taxes for these properties? Obviously not.” Mr. Feinman reports that Mayor Sheehan has either refused or is unable to provide a breakdown of the cost of garbage collection in the City.

I find that inability to provide financial details around this new tax an alarming development. Mayor Sheehan initially swept into office with a call for financial transparency, a pledge she has mostly kept. This lack of transparency over the matter appears to be alarming many of the Council Council members who represent the downtown neighborhoods. But unless there is strong public resistance to this new flat tax the Common Council will almost certainly accede to the mayor’s demand.

In any case CDARPO will fight the proposal in court and delay implementation of the tax for at least this coming year. That means we can expect that the proposed budget for 2016 will be an additional $1.5 million short. I think we can count on that.

Festive Christmas Lights and Garbage Waiting For Pickup On South Swan Street
Festive Christmas Lights and Garbage Waiting For Pickup On South Swan Street

Okay, so that’s a total slam of part of Mayor Sheehan’s proposed budget, something I would rather not do. Most people agree that as mayor she is doing an excellent job, modernizing and casting sunshine on the moribund kleptocracy that she inherited and taking advantage of the changing economic conditions that are beginning to favor sustainable urban communities. The City of Albany was even named a winner of the Google Corporation’s 50 eCity Award. From the City’s press release:

The eCity Awards recognize the strongest online business community in each state — the digital capitals of America. Albany was recognized as having New York’s strongest online business community, which has embraced the Web to find new customers, connect with existing clients, and fuel their local economies.

Seriously! It’s hard to believe that America’s second oldest City, known for centuries of machine politics and a shockingly outmoded bureaucracy, is now considered by one of the world’s biggest corporations as the most forward online City in the State of New York. This is after less than two years of reform and reorganization by Mayor Sheehan, obviously she is doing a lot of things exactly right.

And an observer like myself has to recognize that the mayor is trying to repair almost insoluble financial problems that her predecessor routinely covered up or made worse. As such we observers have been willing to grumble and let her use flukey devices like red light cameras, projected land sales and plain old wishful thinking to balance the City’s budget. But charging a flat tax to pick up garbage, when there is no evidence this plan is anything more than a revenue collection scheme to fund the rest of the budget? Not acceptable.

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Posted by:John
Posted on:12/19/2015
Screwing around with Cuomo isn't exactly a wise strategy. Get ready for a big bill next year.

I'm personally really disappointed in Sheehan. The lunatic in charge of the Water Board is adding 10-15 engineers this year. (I wonder what will happen to those rates?) The city is still providing SUVs to department heads. The fire department can't maintain equipment and is hiring out work while maintaining in-house mechanics as well. Haven't heard of any meaningful cuts in either public safety department. And the IT projects that were supposedly saving money don't appear to have appeared.

If we're careening towards a fiscal nightmare, why isn't the city being run like nothing is wrong?

Posted by:Roger Green
Posted on:12/20/2015
When I link to this at the end of the month, I mcalled this the City of Alban't Budget Crisis, because, outside of the area, when people ay "Albany", they think the state of New York, the Capitol. It's like Moscow is Russia, Washington is the US, et al.

Posted by:Dan Van Riper
Posted on:12/20/2015
Good point Roger, I hadn't thought of that! I'm living in a mental small town. I'm going to amend the title.

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